Risk Management in the Supply Chain PDF

Running head: SUPPLY CHAIN MANAGEMENT
Supply Chain Management
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SUPPLY CHAIN MANAGEMENT
Table of Contents
Introduction......................................................................................................................................2
Managing Intangibles in a Changing Environment.........................................................................2
Managing information, knowledge management, learning organizations.......................................4
The Mechanics of Value Chain.......................................................................................................4
Contingency Theory and Institutional Theory leading to Continuous improvement......................5
Outsourcing of elements..................................................................................................................6
Backward and Forward Integration in the Supply Chain................................................................6
Measuring supply chain cost and performance...............................................................................9
Risk Management of the supply chain...........................................................................................10
Conclusion.....................................................................................................................................10
References......................................................................................................................................11

SUPPLY CHAIN MANAGEMENT
Introduction
Starbucks Corporation is identified as an American coffee company founded at Seattle
Washington in 1971. The main products of the company include “hot and cold drinks”, “whole-
bean coffee, micro ground instant coffee” and “Teavana tea products”. The company generally
brings the coffee beans from “Latin America, Africa and Asia” to the United States in ocean
containers. Depending on the location of produce the regional warehouses supports the entire
operation of the company (Starbucks Coffee Company 2018). Some of the many aspects of the
report has been discussed with conducting a critical analysis using “Porters’ Value Chain, of the
management of tangibles, intangibles and information within the global supply chain”.
Additionally, the report will include outsourcing strategy from the global, national and local
perspectives and evaluate the backward and forward growth in the supply chain by considering
the merger and acquisition activities. A critical analysis for the discourse with support how the
company has been successful in managing global, national and local risks by considering the
agile and flexible supply-chain. In addition to this, the critical analysis is assimilated to a logical
argument and reason conclusion. Some of the major ability of undertaking comprehensive
research is identified with both academic and organizational materials thereby showing a suitable
breadth and depth of sources considered for the research study.
Managing Intangibles in a Changing Environment
In the recent times, a growing need of managing intangibles is discerned with showcasing
dynamic capabilities. Particularly referring to Starbucks, it has been discerned that it follows a
direct interaction with the production team and adheres to the social responsibility standard

SUPPLY CHAIN MANAGEMENT
thereby making the suppliers feel to be having an integral role in the strategic management
decisions. Moreover, a close relationship and frequent complication among the suppliers has
always ensured that there are no major disruptions leading to workforce shortage or overplanting.
In order to maintain efficient supply-chain relation, Starbucks applies vertically
integrated SC strategies which is present all along the supply-chain process. This is depicted with
from procurement of the coffee beans to the coffee cup sold to the consumers. The use of
vertically integrated system is directly relevant to more than 300000 coffee growers situated
worldwide. Additionally, the company also trusts that direct interaction with the farmers that
ensure that all the coffee beans will be able to attend same flavor and quality standards
(Contributor 2017).
The application of Porter’s Value Chain in this context is considered with inbound
logistics functions, which involves Starbucks agent choosing coffee beans producers maintain
African continent thereby establishing strategic relationships with the suppliers. The operations
are conducted in more than 50 countries currently owning 8870 company operated stores and
8139 globally operated stores. The outbound logistics function is taken into account with selling
the product in the stores without involvement of any intermediaries. However, the company
proposes to launch coffee sachets products such as 3 in 1 coffee to be launched in leading
supermarkets. The service function is seen with customer service as the main objective driving
the mission statement. The marketing and sales does not rely on word of mouth but depict the
achievements via quality products and customer services. The infrastructure includes general
support for activities such as government relations, planning, financing, management and
working for in entire value chain. The HR management is recognized with this training and
development programs which ensures that stops are always motivated with both tangible and

SUPPLY CHAIN MANAGEMENT
intangible incentives. The different aspects of technological improvement include technology for
cost-saving purposes. The procurement function constitutes of production of final offering
services or products (Starbucks Coffee Company 2018).
Managing information, knowledge management, learning organizations
As stated by Chua and Banerjee (2014), the research study “Customer knowledge
management via social media: the case of Starbucks” some of the major findings associated to
redefining the information management by deploying wide range of social media tools for CKM.
Firstly, the information management through various social media sites and other online blogs
have been able to reveal to have been able to act as an effective marketing instrument for the
company. Secondly, Starbucks has been able to redefine the customer roles by using such
platforms and transforming “passive recipients of beverages to active contributors of
innovation”. Some of the other major findings has suggested that the use of the strategy by
Starbucks and alleviated customers reluctance pertaining voluntary knowledge sharing and
promoting better engagement in the social media sites. The knowledge strategy of the company
is also identified with placing themselves in the market and accessing their current brand and
products offered. It is also to deploy information sharing by learning about customer buying
behavior (Hugos 2018).
The Mechanics of Value Chain
As discussed by Chen (2014), the mechanics of value chain is understood with
integration of material management, procurement, logistics with functions relating to HR,
finance and IT leading divorce and enhanced customer value. The integration process at
Starbucks has been taken into account with ERP system which is mainly identified with the use
of “Microsoft Dynamics 365”, which is an enterprise resource planner and customer relationship

SUPPLY CHAIN MANAGEMENT
management software application developed by Microsoft. Such a system is able to bring
together various functions such as “finance, accounting, human resource, manufacturing, supply-
chain management, project management along with customer relationship management” (Libby
2014). The use of such an application has been able to ensure that the company is able to procure
the products at best possible price and at the same time associate the costs, personal requirements
and production units under the secondary department is identified as finance, accounting, human
resource and manufacturing. In addition to this, the value chain mechanics by using such a
software is also depicted when the company’s accounting for supply-chain costs and identifying
various effects in the relevant accounting department, production department and HR department
(Kapp, Latham and Ford-Latham 2016).
Contingency Theory and Institutional Theory leading to Continuous improvement
The application of contingency and institutional theories has been conducive in overall
operations of the company. The contingency and institutional theories are identified as
application of lean approach the supply-chain and JIT. The depictions of previous research is an
application of JIT in case of Starbucks has been conducive in improving the overall consistency
in the service. Starbucks uses “just-in-time inventory” for performing some of the vital functions
such as “forecasting, scheduling, ordering, and delivery of goods”. Despite of the significant
benefits of this approach, in the short run cost concerns associated to the implementation of JIT
has been a major issue for the company. Some of the immediate and long-term benefits are
however is associated to reduction in cost and improvement in overall efficiency
(Customwritten.com 2018).
The implementation of “total quality management” in Starbucks has supported better
employee training, supply of products, improved raw materials (roasted coffee beans), bonding

SUPPLY CHAIN MANAGEMENT
with the customers, joint ventures, mail-order sales, license stores and specialty sales. The
implementation of Lean approach in Starbucks is particularly viewed with reducing the wastes
which affects the environment over time. In order to ensure that the company is able to create a
minimum carbon footprint and attain better value for the organization, it aims at promoting
reusable cups and greener cups (Starbucks Coffee Company 2018).
Outsourcing of elements
The main operations of the company include outsourcing off coffee beans from “Latin
America, Africa and Asia” to the United States in ocean containers. The final storage is further
dependent on availability of warehouses in the designation location. At the port of entry “beans
are trucked to six storage sites, either at a roasting plant or nearby”. In addition to this, the beans
are packaged, roasted and transported to the regional distribution center ranging from 200,000 to
300,000 square feet in size. It is worth noting that the company operates in five regional
distribution centers across the United States among which two are “company-owned” and the
other three are depicted to be owned by “third-party logistic companies” or (3PL)
(Supplychainquarterly.com 2018). In addition to this, the four main supplies and functions
performed by the company are recognized in terms of planning, delivering, sourcing and
manufacturing. The sourcing activities of the company is depicted to be grouped into “coffee and
non-coffee procurement”. Starbucks has been designed to spend more than USD 600 million on
coffee every year. The various purchasing activities like “baked goods, store furniture and paper
goods” are worth more than $ 2.5 billion.
Backward and Forward Integration in the Supply Chain
The backward integration of supply-chain of Starbucks has been identified with the
following factors”

SUPPLY CHAIN MANAGEMENT
 Purchase agreements with coffee growers- This is identified with the agreement with
the coffee producers located in three main regions namely “Africa, Latin America and
Asia Pacific”. The company is further committed to source the coffee beans completely
in an ethical manner from the farmers abiding by coffee and farmer equity practices.
 Coffee bean roasting plant owned by the company- This is recognized with a purchase
of 600-acre coffee bean farm facilitated with research and development to offer hybrid
coffee beans.
 Company-owned distribution facilities and warehouses-Starbucks has several plants
over the United States for storing full tea leaf and coffee beans.
The forward integration of the company is identified in areas such as:
 Food and Drink
 Accessories
 Coffee and Appliances
The analysis of Porter’s five forces in Starbucks is depicted below as follows:
Threat of new entrants
Due to its present brand-name, to a new business trying to disrupt the operations and
challenging the profitability of Starbucks is improbable in nature.
Threat of substitutes

SUPPLY CHAIN MANAGEMENT
Starbucks is not seen to be having much substitutes. The offerings of the product such as
fruit smoothies, coffee and juices make it difficult for the customers for other alternatives
(Investopedia. 2016).
Bargaining power of customers
Due to the low value per transaction the customers do not hold much power in terms of
buying the products. In addition to this, the small cost per transaction creates big similarities
among the buyers (Duke 2017).
Bargaining power of suppliers
The company’s supplier is seen with a wide base which is located in more than 23000
regions around the world. In addition to this, the company serves “other beverages as well, from
tea to fruit smoothies, and food items, but coffee is its main business”. Henceforth, the suppliers
don’t have much bargaining power.
Industry rivalry
The company faces broad range of rivalry from its competitors. Some of the main
competition for the companies identified with similar coffee chain such as Caribou Coffee
(Rothaermel 2015).

SUPPLY CHAIN MANAGEMENT
Figure: Porters’ Five Force Analysis- Starbucks
(Source: Chowdhury 2016)
Measuring supply chain cost and performance
As discussed by Hugos (2018), the supply-chain cost and performance of the company is
evaluated with identifying the cost drivers associated with the products. In addition to this, the
company uses scorecards to keep track of the current performance and outline the activities of
the customers and third-party relationships. The use of frequent scorecards is conducive in
tracking the indicators to emerging problems in the latter stages.

SUPPLY CHAIN MANAGEMENT
Risk Management of the supply chain
Starbucks significantly considers risk management program protect its supply-chain
activities. In an effort to safeguard its global brand, has been identified to use “enterprise risk
management program (ERM)” to identify the emerging trends which may influence the supply-
chain activities. The ERM considers macro trends which helps in evaluating the factors
interrupting the supply-chain and service provided to the customers. They enterprise risk
management program is critical to the company for tracking of early risk exposure involvement
thereby providing a tactical roadmap for considering future risks. The program has further
addressed the key is factors in SCM associated to “supply interruptions, financial volatility, and
geopolitical events” which may significantly hamper the overall “supply chain operations”.
Another risk mitigation aspect maintained by the company is recognized with creating center of
excellence which is headed by the experts and critical to the success of the company. These
centers are conducive in assisting regional and local operations by providing industry consulting
and analytics. These centers are also beneficial in providing the necessary assistance during a
situation of crisis (Supplychainquarterly.com 2018).
Conclusion
The study has been able to state that main operations of the company include outsourcing
off coffee beans from “Latin America, Africa and Asia” to the United States in ocean containers.
The final storage is further dependent on availability of warehouses in the designation location.
At the port of entry “beans are trucked to six storage sites, either at a roasting plant or nearby”.
Various types of strategic management theories have been conducive increasing the overall
performance of the company.

SUPPLY CHAIN MANAGEMENT
References
Chen, T., 2014. Teaching Model Innovation of Production Operation Management Engaging in
ERP Sandbox Simulation. International Journal of Emerging Technologies in Learning
(iJET), 9(3), pp.59-63.
Chowdhury, M.E., 2016. Textbook To Reality: Using Corporate Earnings Reports As An
Effective Teaching Tool For A Business Capstone Course. American Journal of Business
Education (Online), 9(4), p.147.
Chua, A.Y. and Banerjee, S., 2014. Customer knowledge management via social media: the case
of Starbucks. Journal of Knowledge Management, 17(2), pp.237-249.
Contributor, G. (2017). Supply Chain Putting the . [online] Digital and content marketing.
Available at: https://www.fronetics.com/supply-chain-putting-star-starbucks/ [Accessed 9 May
2018].
Customwritten.com. (2018). Executive Summary - Just-In-Time (JIT) Inventory Management in
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9 May 2018].
Duke, D., 2017. Porter’s Five Forces and the Coffee Industry. Management Teaching Review,
p.2379298117726765.
Hugos, M.H., 2018. Essentials of supply chain management. John Wiley & Sons.
Hugos, M.H., 2018. Essentials of supply chain management. John Wiley & Sons.

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Investopedia. (2016). Analyzing Starbucks' Threat of Substitutes | Investopedia. [online]
Available at: https://www.investopedia.com/university/starbucks-porters-5-forces-0/analyzing-
starbucks-threat-substitutes.asp [Accessed 9 May 2018].
Kapp, K.M., Latham, W.F. and Ford-Latham, H., 2016. Integrated learning for ERP success: A
learning requirements planning approach. CRC press.
Libby, T., 2014. Theorizing literacy in the service industry: A starbucks case study. Oklahoma
State University.
Rothaermel, F.T., 2015. Strategic management. McGraw-Hill Education.
Starbucks Coffee Company. (2018). Recyling & Reducing Waste | Starbucks Coffee Company.
[online] Available at: http://www.starbucks.in/responsibility/environment/recycling [Accessed 9
May 2018].
Supplychainquarterly.com. (2018). From bean to cup: How Starbucks transformed its supply
chain – Procurement – CSCMP's Supply Chain Quarterly. [online] Available at:
http://www.supplychainquarterly.com/topics/Procurement/scq201004starbucks/ [Accessed 9
May 2018].
Supplychainquarterly.com. (2018). Starbucks adds risk management program to help protect its
supply chain – CSCMP's Supply Chain Quarterly. [online] Available at:
http://www.supplychainquarterly.com/news/20140226-starbucks-adds-risk-management-
program-to-help-protect-its-supply-chain/ [Accessed 9 May 2018].